The threat of the coronavirus has been felt across various sectors, but none more severely than the airline industry.
That impact is so great that some global carriers could shut down as a result.
Demand for airline travel was already impacted in a big, negative way when the coronavirus was contained to just China. Now that COVID-19 has gone global, that demand is getting worse.
The International Air Transport Association said it expects global airline losses of up to $113 billion as the virus continues to spread.
“The turn of events as a result of COVID-19 is almost without precedent. In little over two months, the industry’s prospects in much of the world have taken a dramatic turn for the worse,” IATA Director General and CEO Alexandre de Juniac said via statement. “It is unclear how the virus will develop, but whether we see the impact contained to a few markets and a $63 billion revenue loss, or a broader impact leading to a $113 billion loss of revenue, this is a crisis.”
Domestic Airlines ‘Prepared For it to Get Worse’
On Tuesday, Delta Air Lines Inc. (NYSE: DAL) and American Airlines Group Inc. (Nasdaq: AAL) announced they were making network cuts in response to the drop in demand.
American plans to cut 10% off its peak summer international flying, including a 55% cut to its trans-Pacific routes. It will shave 7.5% off its April domestic capacity as well. American also suspended its Q1 and FY 2020 guidance.
Atlanta-based Delta said it will cut back its international flying by as much as 25% and domestic capacity by 10% to 15%. CEO Ed Bastian said Delta has seen a “25%-30% decline in net bookings and are prepared for it to get worse.”
“We expect demand erosion to continue in the near-term and have built a plan that prioritizes free cash flow generation and preserves liquidity,” he said at the J.P. Morgan Industrials Conference.
Both Delta and American stocks were up early Tuesday morning. But both have been down more than 22% since the end of January.
Last week, United Airlines Holdings Inc. (Nasdaq: UAL) said it would cut 10% of its flights in the U.S. and Canada along with 20% of its overseas travel. JetBlue Airways Association (Nasdaq: JBLU) is reducing its capacity by 5% “in the near term.”
‘Company Survival’ at Stake for Other Carriers
If the situation sounds bad for American-based airlines, it is even worse for carriers around the world.
Korean Air Lines — South Korea’s largest — has already cut 80% of its international capacity. And if things get worse, it could threaten the company’s viability.
“The situation can get worse at any time and we cannot predict how long it will last,” Korean Air president Woo Kee-hong said in a memo to employees. “But if the situation continues for a longer period, we may reach the threshold where we cannot guarantee the company’s survival.”
Qantas Airways — Australia’s flagship carrier — said it will cut international flights by 25% as its CEO and chairman announced they would not take a salary.
Flights to and from Italy — where the virus has had the largest impact outside of China — have been cut by Norwegian Air, British Airways, Ryanair, EasyJet, Wizz Air and Israel-based El Al.
A Possible Solution for the Airline Industry
While markets tanked Monday thanks to a new oil price war between Saudi Arabia and Russia, it has provided some relief for the airline industry.
Delta said Tuesday it could see a $2 billion benefit from the decline in oil prices.
But that won’t last forever.
President Donald Trump said he plans to meet with leaders in the travel industry to discuss possible solutions, but no details have been announced.
Trump did float the idea of a possible payroll tax cut and other stimulus measures to stem the tide of economic damage from the coronavirus outbreak. Details on those plans have also been light.
For right now, the airline industry can only hope for a fast solution to the coronavirus to minimize the negative repercussions of its spread.
Editor’s note: Are you planning to travel by air anytime soon, or is the coronavirus keeping you from doing so? Let us know in the comments below.
